U.S. stocks fell for the week, giving benchmark indexes their biggest loss since January, as mounting tensions in Ukraine and signs of a slowdown in China overshadowed reports showing an improving American economy.
General Motors Co. slid 9.6 percent after the automaker was said to face a U.S. investigation into a vehicle recall. Bank of America Corp. and Citigroup Inc. declined at least 3.1 percent, helping to lead loss among financial companies in the Standard & Poor’s 500 Index. Newmont Mining Corp. and Barrick Gold Corp. climbed more than 5 percent as gold prices jumped.
The S&P 500 fell 2 percent to 1,841.13 over the five days. The benchmark index erased its gains for the year, after closing at a record on March 7. The Dow Jones Industrial Average (INDU) decreased 2.4 percent to 16,065.67. Both gauges completed their worst week since Jan. 24. The S&P 500 is now down 0.4 percent for the year, while the Dow has lost 3.1 percent.
“A lot of the good news and data already seems to be priced in,” Kevin Caron, a Florham Park, New Jersey-based market strategist at Stifel Nicolaus & Co., which oversees about $160 billion, said by phone. “Whenever there’s uncertainty or concern around geopolitics, the first reaction will be to sell and weigh the evidence later. That’s what we’re seeing now in response to China and continued tension in the Ukraine.”
Equities slipped as the U.S. and Russia failed to make progress on ending the Ukraine crisis as the Crimea peninsula prepared to vote on joining Russia in a March 16 referendum. Secretary of State John Kerry told a Senate panel the U.S. and Europe will take “very serious” steps the day after the vote “if there is no sign” of a resolution to the crisis.
Stocks were also weighed down as data from China indicated the world’s second-largest economy is slowing. Retail sales fell short of estimates and industrial output cooled more than estimated in January and February. China announced an economic growth target of 7.5 percent a week earlier, the weakest since 1990, and had its first onshore bond default after a solar-panel maker failed to make an interest payment.
The Ukraine conflict and concern about China helped send the Chicago Board Options Exchange Volatility Index (VIX), a gauge for U.S. stock volatility, surging 26 percent for the week. The index is up 30 percent for the year.
The geopolitical issues also overshadowed economic reports that indicated the U.S. economy is starting to shake off the effects of severe winter weather. U.S. retail sales rose in February for the first time in three months despite colder-than-normal temperatures and severe snowstorms that blanketed parts of the U.S. The number of Americans filing for unemployment benefits unexpectedly dropped to the lowest level since the end of November.
“You really have to look how far and how fast stocks went last year,” David Kahn, managing director at Convergent Wealth Advisors, which oversees more than $11 billion, said in a phone interview from Los Angeles. “Investors are digesting that, looking to Eastern Europe and seeing the black cloud overhead. The underlying economy, which we think is the most important, continues to chug along.”
The S&P 500 rallied 30 percent last year for its best performance since 1997. Three rounds of Federal Reserve stimulus have helped push the S&P 500 up 172 percent from a 12-year low, as U.S. equities enter the sixth year of a bull market that started March 9, 2009.
Benchmark indexes reached all-time highs this year as Fed Chair Janet Yellen said the U.S. economy was strong enough to withstand measured reductions to the central bank’s monthly bond purchases.
The Federal Open Market Committee, which meets March 18-19, has cut monthly bond buying to $65 billion from $85 billion in December. Policy makers have indicated they plan to taper by $10 billion at each meeting absent a weakening in the economy.
Nine of 10 main S&P 500 groups decreased this week. Industrial stocks led the declines, falling 3.2 percent as a group. ADT Corp. (ADT), which provides security services for residences and small businesses, had the second-worst performance in the S&P 500, falling 9 percent to $28.08, a record low.
Bank of America dropped 3.1 percent to $16.80 and Citigroup lost 5.5 percent to $46.88 as financial stocks slumped 2.5 percent. The two lenders were among more than a dozen banks sued by the U.S. Federal Deposit Insurance Corp. for allegedly manipulating the London Interbank Offered Rate from 2007 to 2011.
General Motors fell 9.6 percent to $34.09 as the U.S. Justice Department started a preliminary investigation into how the carmaker handled the recall of 1.6 million vehicles with faulty ignition switches linked to at least 12 deaths, said a person familiar with the probe. The weekly decline was the largest in the S&P 500.
An S&P index of homebuilders lost 5.3 percent, bringing its decline for the month to 8.3 percent, as Toll Brothers Inc. dropped 7.7 percent to $36.21 and PulteGroup Inc. fell 5.7 percent to $19.15.
Offshore drillers decreased after ISI Group said in a client note that deepwater rig demand is weaker than the market has anticipated. Diamond Offshore Drilling Inc. slid 8.8 percent to $44.20, the lowest level since 2005. Noble Corp. (NE) fell 8.2 percent to $29.08 and Transocean Ltd. erased 7.7 percent to $38.84.
DuPont Co. declined 2.2 percent to $65.77. The largest U.S. chemical maker by market value said in a regulatory filing that first-quarter sales and earnings will be affected by winter weather and the situation in Ukraine.
Aeropostale Inc., a retail chain that sells teen and children’s apparel, tumbled 21 percent to $5.83 after mounting losses and a $150 million loan raised concern that the company is running out of cash.
American Eagle Outfitters Inc. lost 11 percent to $12.78. The teen-apparel retailer seeking a new chief executive officer forecast first-quarter results that trailed analysts’ estimates.
Urban Outfitters Inc. tumbled 5.4 percent to $35.55. Chief Executive Officer Richard Hayne said he expects poor weather to contribute to lower sales and profit margins in the first quarter for its Urban Outfitters-branded shops.
Herbalife Ltd., the nutrition company that hedge fund manager Bill Ackman has accused of being a pyramid scheme, lost 10 percent to $58.04. The company disclosed that the Federal Trade Commission has started a civil probe into its practices.
Newmont Mining was the biggest gainer in the S&P 500, increasing 6.4 percent to $26.18, and Barrick Gold rose 5 percent to $20.91. Gold rallied 3 percent, advancing to the highest level in six months, as tension in Ukraine spurred demand for a haven.
Freeport-McMoRan Copper & Gold Inc. slumped 3.5 percent to $31.06 as the price of copper tumbled more than 4 percent.
McDonald’s Corp. increased 2.2 percent to $97.58 after Chief Financial Officer Pete Bensen said the company may look to cut costs and borrow more cash to return to investors. The world’s largest restaurant chain is “actively looking at ways to optimize our capital structure, while maintaining our long-term financial strength,” he said at an investor conference.